Abstract

Many conceptual issues underlie the current policy debate over how to reform the fee-for-service method of paying physicians, including the development of a relative value scale for physicians' services and the relationship between a relative value scale and a fee schedule. We consider the relationship between fees and costs and the criteria for judging whether a fee is appropriate or right and then propose a two-step process for constructing a relative value scale. A fee schedule based on a relative value scale is the most practical way to reform the current fee-for-service system and makes the most sense from both clinical and economic viewpoints.